Malaysia Accounting Standards – Complete Guide

Understanding the intricacies of Malaysian accounting is crucial if you are planning or you already have a company in Malaysia. More details regarding the accounting standards in Malaysia can be found below. 

WHAT DOES AN ‘ACCOUNTING STANDARD’ MEAN?

Accounting Standards are a collection of rules or principles that regulate accounting procedures throughout a country, region, or the world. Prior to the establishment of standards, different countries employed their own set of regulations.

As globalization increased, accounting information was increasingly employed in cross-border decision-making processes, and decision-makers were often unfamiliar with the varying accounting procedures used by different countries.

WHAT ARE THE MOST COMMON ACCOUNTING STANDARDS?

Among the most common accounting standards are the Generally Accepted Accounting Principles (US GAAP) and the International Financial Reporting Standards (IFRS). The USGAAP, as the name implies, is used mostly in US jurisdictions, whereas the IFRS is used predominantly in European countries. As of today, many nations, including Malaysia, use IFRS as a basis for developing their own accounting standards.

WHAT ARE THE TYPES OF ACCOUNTING STANDARDS THAT ARE USED IN MALAYSIA?

There are a few types of accounting standards that are used in Malaysia, which are as follows:  

The Malaysian Financial Reporting Standards (MFRS)

In Malaysia, bigger business companies utilize MFRS. They are mostly based on the International Financial Reporting Standards (IFRS) and have been integrated into the Malaysian set of standards to standardize the financial reporting throughout the world.

The MFRS is followed by all publicly traded companies in Malaysia. Finance professionals that are well-versed in MFRS are likely to be well-versed in other accounting standards as well, such as MPERS and PERS.

The Malaysian Private Entity Reporting Standards (MPERS)

MPERS are mostly used by companies that are not publicly traded or do not have publicly issued loan notes or shares.

These standards are often less severe and demand fewer disclosures, providing small companies with the benefit of lower compliance costs and regulatory bureaucracy.

The Private Entity Reporting Standards (PERS)

PERS, like MPERS, is intended for private organisations. However, as of January 1, 2016, it was superseded by the MPERS and is no longer in use.

Generally Accepted Accounting Principles (US GAAP), and Other Generally Accepted Accounting Practices (GAAP)

As previously stated, GAAP is used in separate jurisdictions. When the entity’s Head Office is located in a jurisdiction that follows one of these standards, these standards are frequently applied.

While Malaysian branches are expected to create a set of accounts under the local standards, the set of accounts provided to their Head Offices is normally prepared in accordance with the aforementioned criteria.

Differences in accounting standards are often found and addressed through a laborious procedure known as gap analysis, which is typically performed by the person in charge of financial reporting at either the Head Office or the local Branch.

WHICH ACCOUNTING STANDARD SHOULD I USE FOR MY COMPANY IN MALAYSIA?

The Malaysian Institute of Accountants (MIA) published a decision tree to assist entities in determining which financial reporting framework to employ, which can be seen below: – 

The first decision tree point is whether the company was formed under the Companies Act 2016. This seeks to answer the issue of whether an entity is private, public, or any other type of entity such as a society, joint-management organisation, or association. It helps in the establishment of the relevant approving authority for the entity’s financial reporting duty.

The decision tree’s following questions help the organisation in assessing and determining if it can implement MPERS. MPERS, as previously stated, is solely applicable to private companies. 

The first decision tree question is whether the company was formed under the Companies Act of 2016. This seeks to answer the issue of whether an entity is private, public, or any other type of entity such as a society, joint-management organization, or association. 

It aids in the establishment of the proper authorizing authority for the entity’s financial reporting duty. According to Section 2 of the Companies Act 2016, the following are the criteria for a private company.

1. Is not obliged by any legislation regulated by the Securities Commission or Bank Negara Malaysia to compile or lodge any financial statements.
2. Is not a subsidiary, affiliate, or joint controlling entity of any business obliged to produce or lodge financial statements under any legislation regulated by the Securities Commission or Bank Negara Malaysia.

Therefore, the most relevant accounting standard for your company can be summarized as follows:

MPERS

If your company is a private entity, is incorporated under the Companies Act 2016, and fits the definition from the Companies Act 2016.

MFRS

If your company is a private entity, is incorporated under the Companies Act 2016, but does not fit the definition from the Companies Act 2016.

Other relevant frameworks such as the Accountant General’s Office, Joint Management Bodies (JMB), Societies and Associations, Federal and State institutions, etc. 

If your company is not incorporated under the Companies Act 2016.

Need more help? Here at Relin Consultants, we strive to assist business owners and entrepreneurs to help their companies grow in stature.